I’ve been doing a fair amount of speaking lately. It’s partly driven by my
recently released book, Inbound Marketing: Get
Found Using Google, Social Media and Blogs (which is doing exceptionally well -- more below on this). The topics I usually speak
on are startups (surprise) and marketing (surprise, surprise). And, when I’m
really on a roll and feeling adventurous, I talk about startup
marketing.

First off, a quick confession. I’m not really a marketer, and I don’t play
one on TV. I’ve never had the word marketing in my job title, ever. The
closest I’ve come to any formal academic training in marketing are two marketing
classes I took in grad school. Neither of them were really about marketing a
startup (they were about pricing and branding and other high falutin’ stuff).
So, much of what I’ve learned about startup marketing has been through (gasp!)
actually doing it.

Now, I want to lead with the fundamental premise of this article:

Exceptional marketing can be a formidable barrier to entry.

For those of you that are new to the investor game (which is usually where
the phrase turns up), “barrier to entry” is loosely defined as that thing which
makes it hard for competitors to enter your market and
reduce your profits. In most cases, when VCs ask a startup about barriers to
entry, the response usually falls into one of two categories:

Type 1: We’re doing something that is so hard to do that few others can do
it. This is usually manifests in the form of some intellectual property (IP)
like source code.

Type 2: We’ve got exclusive/proprietary access to some important resource
that others can’t get to. This could be in the form of some product integration
partnership (like bit.ly has with Twitter).

Of course, there are other types of barriers to entry, but the above two
types capture most of what you’re likely to hear — and software entrepreneurs
are often focused on the first one (i.e. "lets build a kick-ass product that’s
really hard and others can’t replicate because we’re just so freakin’ awesome").
Nothing wrong with that. I’m a big fan of doing really hard things that you’ve
got a rare talent for and others can’t easily emulate. However, it’s entirely
possible that late at night, when you’re talking to yourself, you might say
“Self, I know my application is cool and all, but honestly, I don’t think it’s
that hard to build.” Be comforted in the knowledge that most
software being built is not particularly hard to recreate. So, the question is,
if it’s not the software that’s going to be your barrier to entry, and you’re
not fortunate enough to have a lock on some proprietary resource, what do you
do? My advice: Get phenomenally good at acquiring customers
efficiently. The emphasis is on the word “efficiently”.

So, here are some thoughts and insights on how I think you can build a
barrier to entry with marketing:

How To Build A Barrier To Entry With Inbound Marketing

1. Getting good at spending money doesn’t count. Your
strategy shouldn’t be “go raise a bunch of money, then use that money to go
buy your way to some customers. Then, make it up in volume.” Though that can
certainly work, that’s not a defensible barrier to entry. Just about
anyone can spend money (some smarter than others). You need to
focus on creativity, not cash. More on this later.

2. PPC (Pay-Per-Click) can be effective, but will not protect you.
One of the popular forms of marketing today is pay-per-click
advertising through programs like Google AdWords. I’ve seen entrepreneurs get
really, really good at figuring out just the right bidding strategy and figuring
out precisely how much they can afford to spend on a given word based on their
conversion rate and lifetime value of the customer. This is all fine and good,
except for one thing. PPC programs like AdWords run as a real-time auction.
She who pays gets the clicks. It’s easier to describe why this is a problem
with an example: Let’s say that you’re building a web-based app for home
theatre installers (random example that I just made up). Let’s also say that
over time, and with some maniacal focus and PPC bidding ninja skills, you figure
out that you can afford to pay up to about $2.76 a click based on the traffic
that these clicks generate, how many clicks lead to purchases, and the value of
each purchase. Life is good. For every $1 you put in to the PPC machine,
something > $1 comes out. This goes on for weeks/months. Then, all of a
sudden, you wake up one morning, check your analytics and discover that for some
reason, the price for your most important keyword went up. Way up. Enough that
your morning coffee comes shooting out your nose. After some poking around on
the Interwebs, you find out that some lame startup on the other coast just
raised $5 million from some lame VC. They just emerged from the shower freshly
sprinkled with a new round of funding, hired a VP of Marketing who then went out
and started buying AdWords. Your AdWords. The real tragedy with this story is
that this competitor is not all that bright. They don’t know that they
can’t really afford to pay that much for a click and make profits (they’re not
thinking about profits — they just raised a bunch of money). Your problem is
not that they’re super-smart, it’s that they’re super-ignorant. And that’s the
thing with PPC. You’re basically at the mercy of the stupidest market
entrant. Call me simple-minded, but that doesn’t sound like a
particularly effective barrier to entry when someone can just come along and
drive your cost of customer acquisition (COCA) up. And, it doesn’t happen
overnight — it happens immediately.

3. Get spectacularly good at search engine optimization (SEO).
Instead of becoming really, really good at PPC, invest in the time and
energy to become an SEO-ninja instead. The first reason for this is that SEO is
cheaper. Not free (generally), but free on a marginal basis. Here’s why: In
PPC, each additional click costs you money (based on the cost-per-click). Want
1,000 more clicks? You pay for all of them. For SEO, once you’re ranking well
and getting traffic, the clicks don’t cost you anything. It’s going to take
some time/energy to rank in the first place, but once you do, life is good.
Further, unlike PPC, SEO does not reward the stupidest market entrant. Someone
that’s new to the game can’t just walk right in and snatch your #1 ranking.
Granted, they can spend some money and eventually get there, but it’s
not going to be immediate and you’ll probably see it coming. (All you have to
do is watch the search engine results for your favorite keywords and see who’s
creeping up on you). So, unlike PPC, the presence and skills you build in
SEO-land are much more sustainble and defensible. In fact, if you’re out
raising money, being able to demonstrate that you’ve got strong rankings for
traffic-generating keywords is a major, major plus.

4. Create content that kicks butt. It’s really simple. If
you produce things that are useful/interesting to your target customers — you
win. You win by drawing people in to your business not because you had
the largest marketing budget, but because you created something of value. The
kind of stuff that people tweet about, link to in their blogs and and share with
their friends. That’s magical. The type of content can be varied. At my
startup HubSpot, we’ve tried lots of
different things: “normal” blog articles, music videos, parody videos, songs,
cartoons — and of course, free marketing
tools. For most startups, if you took every dollar you would have spent on
advertising to try and beat your prospects over the head in the hopes that
they’ll buy from you and instead spent that dollar on actually producing useful
content, you’d win. Seriously win. This worked so well for us that almost all
of our increase in marketing spend is allocated towards hiring people that can
produce content. They make videos, write blogs, create research reports and
develop software tools. The beauty of this content is that long after you’ve
invested in creating it, it’ll continue to generate traffic and leads. To this
day, some of the early articles I wrote for our marketing blog drive consistent
cash into our bank account. We don’t have to spend a penny for those leads.
I’ll summarize again in four words: Create content. It works.

So, I want you to imagine this: Imagine that you’ve got a business that is
exceptionally good at pulling customers in by the truck-load. Not by spending
money on outbound marketng (like advertising, spam, telemarketing and direct
mail), but organically because they think the stuff you have to say is just so
freakin’ awesome. People are shouting from the virtual twitter rooftops about
how great you are. They’re so mind-bogglingly happy that they’re writing entire
blog articles talking about your company and your product. And you don’t have
to pay them a penny. Now imagine that some competitor emerges, raises money
from Sequoia and comes after you. Do you think it’ll be easy for them to
reproduce that magic that you’ve built? Nope. It’s hard. And that, my
friends, is what I call a bonafide barrier to entry.

On a closing note, I’m going to ask you a favor. It has been less than 36
hours since my book, Inbound Marketing has
been available in bookstores nationwide. Today was the big “release” day.
Already, it’s in the Amazon Top 100 business books list, and the #6 book on
marketing (if you helped make that happen, thanks!) The entire book is about
pulling customers in. I wrote it not to make money (it’s near impossible to
make money writing a book), but to try and convince more people — especially
startup founders, that inbound marketing is a better way to go. So, you should
buy the book. To make it easier for you,
I’ll give you my personal, one-question asked, money-back guarantee. If you buy
the book and don’t find it useful, just tweet me @dharmesh and I’ll send you $25 via
PayPal. (The only question I’ll ask you is “what should I do to make it useful
so people that read the next edition don’t waste their time?”).

Oh, and for whatever reason, if you owe me a favor (or $25), this is a great
karmic-loop way to pay me back. For some reason, even though the money made is
miniscule, I get some emotional gratification from seeing the book do well.
And, $25 is a small price to pay for my emotional betterment, don’t you think? OK,
that’s enough guilt for one blog article. Go buy the book on Amazon. Then, copy-and paste
this message into twitter — “I let @dharmesh talk me into buying his book (http://InboundMarketingBook.com). You should too".

Thanks a bunch for your support and apologies for the shameless promotion this time (I don't do it that often). I promise to get back to my regular shameful promotion next week, once the newness of being a first-time author has worn off.

Oh, and what do you think about exceptional marketing being a barrier to entry? Agree or disagree that this could work?

Great article - I hope you sell many books and your emotional betterment is guaranteed. :-)

I think you make a great point with PPC and Creating Content. What draws people to PPC rather than SEO? PPC is easier. Period. For SEO to work, great content has to anyway be delivered. A great blog must be written often. Relationships must be built with other bloggers and sites so that linking can take place. And many companies, large or small, are afraid of this area because they don't know what to say or how to create content.

And then there is that entire "control" issue that holds them back as well... how are they to go from a tightly controlled communication method, to Social Media?? I can already see the terror in their eyes before I can even say "Social Media Policy."

Best wishes for great sales, Dharmesh, and I agree with the value of SEO. We took one company to #1 on Google News just by SEO content managing press releases over a period of time, and by first determining what the target audience would be searching for in terms of keywords. Gunes has a valuable point to make, in that many people have heard of/think they understand PPC, and generating consistent SEO quality content is more difficult. But perhaps SEO content is not so challenging, if the company focuses on writing about its success, over and over again, in terms that its known or presumed market will be looking for. Just as it may take some 50 repetitions to learn a new vocabulary word, or 9-12 times to take action on a new product exposure, some startups may quit the SEO process too soon. Again, best wishes, Dharmesh, and congrats on your #6 position on Amazon!

Your point about PPC is so true. IT's another example of the inaccuracy of efficient market theory. PPC auctions don't rise and fall to a defensible market price based on individuals' rational self interest. They rise and fall based on trends, idiocy, and total irrationality.

PPC is a worthwhile tool, but it certainly is not a long-term strategy.

Mihir

Hi Dharmesh, do you do mentoring to start-ups ?? To be specific to technology start ups ??? If so how can we be in touch ?? I would suppose that I am leaving my email address here so you can contact me back if you feel like helping me. Regardless thanks very much for this post.

Excellent article. Your reference to "reproducing that magic" is right on target in describing the factors of success for firms utilizing Web 2.0 correctly.

What I communicate to all my clients and partners around the world, is that money spent on advertising to expose a company's basic services versus money spent on producing useful content to expose a company's "magic ingredient" are two different things.

In an uncluttered market with few competitors, the first is de riguer... while in our current noisy web culture, the second creates incredible exposure, credibility, and profound relationships with prospects which lead to revenues.

The additional beauty of having a system to create timely content allows a company to meet any unforeseen market changes by modifying and reasserting their "value proposition" in all web messages and, more importantly, in making their expertise and capabilities relevant in any type of economy.

Best of luck in your new book's release. Complimentary copies are most welcome ;)

I don't read many blogs all the way through but this one really held my interest. I love writing blogs but admit it is time consuming and I often feel I should be doing 'real' work so thanks too for the permission to keep on writing.

We created our home page in Wordpress and have been blogging to get in the Google sandbox and build our SEO ranking. We don't have many visitors yet, but that will change.

Ken Herron is a pro at using social media marketing for free to build brand awareness. We want to be the first to market with our kind of product and with marketing and user experience build users fast so that late entrants can't compete.

Check out our Animoto video at http://bit.ly/Aka84 for a little entertainment.

We launched Daily Grommet a year ago today...the same time the capital markets shut. So we took our short dollars and invested 90% of them in creating great (and totally monetizable) content. It was really fun to read your blog post "endorsing" our big bet--on our birthday. Thanks Dharmesh. And congrats on the new funding!

Great article! Definitely something that needs to be talked more about. What used to work no longer works when establishing a strong business and setting up those "barriers." Build a following, turn that into a community, give "ownership" of the community TO the community and they will never leave you (unless sorely wronged) and THEY will do all the "marketing" to attract new customers. Fantastic! AND... I'll be sure to check out the book!

One of the wonderful things about Inbound Marketing is that not many people really 'get it', or are unable to deliver quality content. If only everyone knew how powerful it can be, on one hand it would make things a bit tougher for the Inbound Marketers of the world, but on the other, there would be a lot more kick-ass content out there.

Dharmesh, You've talked me into buying your book, which is no small feat I assure you. Your book only seems to be available in the USA. I live in Paris and am big on saving trees and reducing the carbon impact of shipping things around the planet. But I would be happy to pay you for a download of the content. Best regards, Carsten

Excellent post, although I'm not sure I agree with the rationale of #2. Irrationality of competitors with deep pockets is always a risk -- and frankly, can be a risk in social media as well. People can spend money to get attention many ways. I think the multi-unit nature of PPC auctions also mitigates that risk -- one rich and irrational bidder simply cannot monopolize the market. (And you, as a ninja PPC entrepreneur can often leverage their advertising against them.)

I agree wholeheartedly with the rest of your suggestions though, and I'm eagerly awaiting my copy of Inbound Marketing from Amazon. :-)

By the way, the report that only 8% of users account for 85% clicks was on DISPLAY advertising, not PPC advertising in Google. There are many reasons why those are two very different vehicles... but that's a post unto itself.

It's a good concept and you can definitely sell a potential investor on the strength of a pre-existing brand as a barrier to entry, or at least a valuable asset, but you need to HAVE that marketing asset already in place for it to be worth something.

This is exactly the thing that those giant companies your startup might be competing with already have in spades - tons of links, an established brand, a place in the market pantheon, etc..

If you're a marketing genius/ninja you'll have to go out and get that strong market position before you can sell it to a VC or investor. And, by the time you get there you probably won't need any VC money any more since you can monetize that market attention by selling an actual product instead of selling your company.

So ... it's a great concept in general but keep in mind it's not a good choice for playing the "investor game"; it's more for bootstrapping startups, or companies with other barriers to entry

Vinod Vijayan

Congratulation on the book release.

Great article with lots of value.. Thank you for sharing this..As a startup - it definetly provides me info on areas where I should focus..

Congratulations on your book and thank you for sharing this information with us.... The first step in the acquisition of wisdom is silence, the second listening, the third memory, the fourth practice, the fifth teaching others. - Solomon Ibn Gabriol -

Great post and the book looks quite well thought out. I ordered, can't wait to read it. Best of luck with it.

I speak to other small business owners ALL the time about needing to create content for their sites, content content content! One of them now every time he sees me says "Hey content guy!". This is the single most underused resource for small business. Write more content!

Interesting spin on using inbound marketing for startups. The idea of making yourself "competition proof" is intriguing, but it seems counter-intuitive since one of the main philosophies of inbound marketing is giving away as much knowledge as you can. How do you reconcile those two things - being unique and "untouchable" and being transparent and giving?

It is great to see a lot of information put forth here in one post. How could I now resist not to go out and buy the book.

It is so much true to create the good content. Yes, it is not easy and takes a lot of time but the better the relevancy and with good key words it is difficult for the competition to get in to your space. The key is to sustain it and getting good at it.

Dharmesh, congrats on the release of the book and the funding. I'm so bought into the points you make in your post, and doing exactly this to build barriers to entry for my startup.

Its so much easier for entrepreneurs to practice inbound marketing, since marketers in bigger companies have so much pressure from above to practice interruption marketing and only focus on things that can be measured in current quarter pipeline contribution.

Congratulations on raising new VC money and also on the release of the book.

I whole heartedly agree with you on PPC vs SEO.

One of the reasons why I like SEO so much (other than the fact that ~75% of clicks happen on natural search results and it is free) is because typically no hard sales pitch is involved. When I see the PPC listing, it is a blatant sales pitch - buy this, buy that.

The organic search on the other hand results often lead to informative articles often lead to blog articles, newsletters, data sheets educating me about to solve the problem before I am ready to buy.

Congratulations on raising new VC money and also on the release of the book.

I whole heartedly agree with you on PPC vs SEO.

One of the reasons why I like SEO so much (other than the fact that ~75% of clicks happen on natural search results and it is free) is because typically no hard sales pitch is involved. When I see the PPC listing, it is a blatant sales pitch - buy this, buy that.

The organic search on the other hand results often lead to informative articles often lead to blog articles, newsletters, data sheets educating me about to solve the problem before I am ready to buy.

Great article! I have had a start up for couple of years (software consulting) and fortunately had clients from day one. Finally, got some infrastructure setup so that I have the bandwidth to add clients by truckload (your phrase). This article was a very good start , I would say.

Looking forward to reading your book!

Thanks Swanand Mokashi Founder and President Malaika Consultants LLC

vick

Hmmmm am I missing something here? I think by now everyone knows SEO and content are 'THE' things to do if you want a good stream of traffic and don't wanna spend too much on marketing.

I bought a Kindle because of you :-) A big thanks because originally I canceled my order from the first day you could order it in Germany, to be shipped from the US. To save some money. Ah, that felt good. Saving $$. Then I told my wife that this would be a great christmas present. But today, I wanted to buy your book on amazon in Germany but it was not available. Neither from amazon.co.uk and then, on the US-site I saw that there is a Kindle edition... that clinched it. Handling paper books such as "The Ultimate Guide to Google Adwords" to optimize our Web Software business in front of a laptop is a nuisance anyway.

Great article. I was considering adding a PPC campaign into the mix but after reading this (I'm already a Hubspot customer) I think I'll just spend more time creating valuable content. My biggest challenge frankly is time. As a new business owner I am pulled in so many directions during the course of a week that I struggle to find the time to dedicate toward writing a blog on a regular basis and creating new content. Does anyone have a time machine?

Great content only works if you've got great distribution (e.g. SEO). Great products never distribute themselves. Bullet 4 only works if you also do bullet 3 or some other type of effective distribution.

Apple has the greatest products in the world but they still built 274 stores to distribute them. Twitter is great but they still got a lot of word of mouth by working SXSW 2007 (I think).

Agree. As a Hubspot customer and recent purchaser of your book, I can attest that our company has done much better with Inbound leads than Outbound and we expend most of our resources on SEO and Content.

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I am glad to read this.....working on a new website at the moment. The question arouse how much to "put aside" for PPC - I said "For the moment nothing"- I got disbelieve. Well, I'll find out if I can pull this off like I've planned. (got your book in hand!Looking forward to digging into it) Thanks Dharmesh